Formal Organisation: Meaning, Features and Limitations

After reading this article you will learn about:- 1. Meaning of Formal Organisation 2. Features of Formal Organisation 3. Merits 4. Limitations.

Meaning of Formal Organisation:

Formal organisation is a well-defined structure of authority and responsibility that defines delegation of authority and relationships amongst the organisational members. It works along pre-defined set of policies, plans, procedures, schedules and programmes. Most of the decisions in formal organisation are based on pre-determined policies.

Formal organisation is “a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability, the whole consciously designed to enable the people of the enterprise to work most effectively together in accomplishing their objectives.”

It is a deliberately designed structure with formal authority, responsibility, rules, regulations and channels of communication. Some degree of formalization is necessary for organisations to function effectively; to avoid taking time-consuming decisions, to handle conflicting situations and exercise control over the activities of subordinates.

Features of Formal Organisation:

Formal organisation has the following features:

1. Deliberately created structure:It is a deliberately created structure that defines official relationships amongst people working at different job positions.

2. Job-oriented:

It focuses more on jobs than people. It allocates jobs to people and defines the structure of relationships to achieve the formal organisational objectives.

3. Division of work:

Work is divided into smaller units and assigned to individuals on the basis of their skills and abilities. Division of work results in specialisation and increases organisational output.

4. Departmentation:

Departmentation is the foundation of organisation structure, that is, organisation structure depends upon departmentation. Departmentation refers to division of work into smaller units and their re-grouping into bigger units (departments) on the basis of similarity of activities. The functional departmentation divides organisation structure into production, finance, personnel and marketing departments. Departmentation helps in fixing responsibility of various departmental heads.

5. Formal authority:

People exercise authority by virtue of their position in the organisational hierarchy. Authority is linked to position and through it, in the person occupying the position. It involves the right to command, to perform, to make decisions and spend resources.

6. Delegation:

Work is officially delegated from top to lower levels. The work load is divided into units, a part is assigned to subordinates with authority to carry out the assigned task. The concept of division of work and its assignment to people down the scalar chain is called delegation.

“Delegation is the process by which a manager assigns tasks and authority to subordinates who accept responsibility for those jobs.”

“Delegation is a process the manager uses in distributing work to the subordinates.”

7. Coordination:

Managers integrate the activities of individuals and units into a concerted effort so that departments and individuals work towards a common goal. Managers coordinate the activities of organisation by communicating organisational goals to each department, setting departmental goals and linking the performance of each department with others so that all the departments collectively contribute to organisational goals. Coordination is “the process of linking the activities of the various departments of the organisation”.

8. Principles of organising:

Formal organisation is based on formal principles of organising, that is, unity of objectives, organisational efficiency, division of labour, authority – responsibility, delegation, scalar chain, span of control, unity of command, balance, flexibility, continuity, exception, simplicity, departmentation, decentralisation, unity of direction and co-operation.

Merits of Formal Organisation:

Formal organisation has the following merits:

1. It clearly defines objectives of the organisation and authority- responsibility relationships amongst people to attain those objectives.

2. It results in optimum utilisation of scarce organisational resources.

3. Division of work and relationships amongst people develops effective system of communication in the organisation.

4. The organisational hierarchy avoids overlapping of activities between two individuals or two departments. Two individuals are not assigned the same task.

5. Career advancement and promotional avenues are clearly defined in the formal structure of organisation.

6. The rate of absenteeism and labour turnover (the rate at which people join and leave the organisation) remains low. (because of clear objectives, policies, strategies etc.).

7. Formal organisation integrates formal goals of the organisation with goals of individuals working in the organisation. There is, thus, synthesis of individual, group and organisational goals.

Limitations of Formal Organisation:

Though formal structure of relationships helps to achieve organisational goals, it suffers from the following limitations:

1. Loss of initiative:

As too much emphasis is placed upon formal rules and regulations, workers do not use their creative and innovative skills to perform organisational tasks. There is loss of initiative and innovative abilities due to strict adherence to rules.

2. Unsatisfied social needs:

Man is a social being. He needs to interact with people and share his feelings at-work and off-work with others. In a formally designed organisation structure, social needs remain unsatisfied as people are related to each other through a formal chain of command to discuss only official matters with each other. Social interactions are altogether ignored.